Microsoft is not commenting, and Yahoo says it does not comment on rumors, but a key executive is quoted as saying a deal to replace the old leadership of Yahoo and get a deal done with Microsoft is not happening.

LONDON (Reuters) -
A report in the Sunday Times that Microsoft Inc is in talks with Yahoo
Inc to buy the U.S. internet company's online search business for $20
billion is "total fiction," according to a key executive cited by an
influential U.S. blog.

The Sunday Times, which did not cite its sources, said the proposal
under discussion involves a complex transaction that would see the U.S.
software giant support a new management team to take control of Yahoo.

The team would be led by ex-AOL Chairman and CEO Jonathan Miller and
former Fox Interactive Media President Ross Levinsohn, the report said.

But the AllThingsDigital blog, affiliated with the Wall Street
Journal, quoted Levinsohn as saying the report was "total fiction." Top
sources at Yahoo and Microsoft also scoffed at the report, the blog
said.

Yahoo spokesman Brad Williams said: "We don't comment on rumors, and all this is a rumor."

A Microsoft spokeswoman declined to comment.

Microsoft withdrew its $47.5 billion buyout offer for Yahoo in May
after Yahoo Chief Executive Jerry Yang and his board rejected the bid
as too low.

Bid speculation was sparked again earlier this month when Yang
announced he was stepping down. Microsoft CEO Steve Ballmer ruled a bid
out at the time, but said he was "open" to talks on a deal for Yahoo's
search business.

Activist investor Carl Icahn -- who sits on Yahoo's board and
increased his stake in the company to 5.4 percent last week --
reiterated he favored the sale of the search business, according to an
interview in the December 1 edition of Barron's.

"Microsoft has said publicly that they are not interested in buying
the whole company, and I believe them. But they are interested in doing
a deal on search, and we should pursue that," Icahn was quoted by
Barron's.

Earlier this year, Icahn threatened to launch a proxy fight against
Yahoo and oust Yang in an effort to push the company to accept
Microsoft's offer. He later struck a deal with Yahoo and joined its
board.

Icahn began amassing Yahoo shares during the company's merger talks with Microsoft.

The Sunday Times said senior directors at Microsoft and Yahoo are
understood to have agreed on the broad terms of the deal, but there is
no guarantee it will succeed.

(Reporting by Rosalba O'Brien in London and Anupreeta Das in New York; Editing by Jan Paschal)